The New Wave

We profile six successful producers and entrepreneurs who have crafted different approaches to the business that not only break the traditional boundaries of an insurance agency, but can serve as examples for any advisor who wants to catch the energy of the 21st Century.

By Amy S. Friedman, Deputy Editor, Advisor Today

Is today’s American insurance agent an endangered species? Although it might be easy to think
the answer is “yes,” that’s not really the right response.
Of course there are producers who would rather not acknowledge the regulatory
shifts, the rapid evolution in technology, or the radical and irreversible
changes in the markets and distribution systems. They want the good old days
to continue.

But the truth is, the good old days can’t. And most agents, no matter how nostalgic they might
wax, know it. Most have known for a while that the days when an agent could
just sit at a kitchen table, pull out a rate book and write a traditional
policy are long over. Caring for someone’s financial needs can no longer
consist solely of protecting assets by selling a life insurance policy. Good
advisors know they have to look at the entire financial picture, including
the client’s investment portfolio and the goals for his or her family
and future, to figure out which products and services to provide and how to
deliver them.

Also, because of news and information available through print, TV, radio and the Internet, savvy
agents are aware that both current and potential clients know more than they
ever have before about retail financial products, the Dow’s bullish bounces
and the latest debates on Capitol Hill. The old ways of selling productassuming
little client knowledge and using pushy, manipulative tools such as the implied
closejust won’t cut it any more.

Practices

Agent practices have been permanently altered by several forces, but one of the more potent ones has
been the securities industry’s inroads into insurance. The changes are
not just due to the creation of variable life and annuities, but also the
push by insurers to convince agents to sell mutual funds, individual stocks
and bonds and, most recently, wrap

products. Even career shops such as Northwestern Mutual are finally getting into the act. And agents
know their practices and markets may see further alterations now that Glass-Steagall has been dismantled.

It’s the rare agent who’s still in the dark about how the Internet and other technological
advances have forced them to resculpt their approaches to their practices
and their markets. Consider Allstate’s early November announcement that
it will be jettisoning some of its agencies to sell car and home insurance
directly, via the Internet and over the phone. Banks have long used such approaches
to sell several kinds of insurance, and have recently been utilizing these
techniques to sell term and long-term care insurance. And some insurance companies
are starting to consider direct marketing methods for their own term products.

Between technology and the Internet’s rapid development, many life and multiline agents fear
their viability may suffer. There has been explosive growth and proliferation
of get-a-quote-on-term-now web sites, which are also moving deeper into P&C
and will surely try to go into permanent life.

There’s complete agreement among the majority of agents, and those who observe and work with
them, that every agent’s approach to his or her practice needs to evolve,
and evolve fast. All of the shifts describedthose occurring now as well
as those projectedwere and are being driven by what the consumer wants,
which can frequently be quite different from what companies think the consumer needs.

And with so much information about finances now so easy to access, the consumer is more demanding than
ever. Those demands, pumped by technology, will continue to drive the evolution
of life insurance and financial advice markets as well as agent practices
as the new millennium unfolds.

ChoicesSo what is the life insurance agent’s market right now, and what’s it going to be? The
market is pretty much what it’s always been: individuals of all ages
and in all income brackets, plus groups and businesses ranging from one to
several hundred (or thousand) lives, segmented in several ways and reachable
in many fashions. There’s still a low-end market, a middle market and
a high-end market. But how those markets now get sliced and diced is completely new.

The extended economic expansion and securities market boom of the past 18 years, as well as regulatory
and legislative changes, means that today’s personal financial services
landscape is substantially different from what it was even 10 years ago.

Whole new classes of rich folks have emerged, unlike any seen before. In addition to the industrialists,
trust-fund babies, lawyers, doctors and financiers of yesteryear, we now also
have suddenly-flush pension rollover recipients, baby Internet barons with
their stock-option millions, and all those young 401(k) investors who have
never known a bear market.

Employee groups are also different. The large conglomerates of yesteryear have splintered, and new
ones have emerged. Small businesses and individual consultancies have burgeoned.
The benefits needs of severely sandwiched baby boomer parents in the workplace
must now encompass not just children, but also care for elderly parents. And
with longer lifespans, and continued efforts to do away with guaranteed lifetime
pensions, retirement just can’t be what it used to be.

So, given this market, how should an advisor structure his or her practice, now and going forward?
That, in the parlance of the good old days, is the $64,000 question

which is actually several questions.

On the product side, should agents be multi-product purveyors, selling not just life and health insurance
but also investment products such as mutual funds and individual securitiesand
even a little P&C, if they can fit it in? Should agents emphasize building
assets, protecting them, or both?

On the technology side, should producers go as high-tech as possible, aiming for a paperless office
and supplementing it with a highly sophisticated, interactive (yet client-friendly)
web site, or move more slowly with technological upgrading? Should they use
technology to mass-market, or try to keep service more personal?

And on the practice management/marketing side, should agents specialize in one market segment or be generalists? If
their practices are growing and maturing and their clients’ needs are
expanding, should they keep working the clients themselves, or hire people
to take care of the customers’ basic needs while they migrate to a different,
and perhaps more profitable, segment or segments? Should agents take on strategic
partners to widen the scope of the advice they can render? And can agents
even think of going it alone anymore, or do they need highly-trained, well-paid
administrative help?

Finally, should agents look at the giving of advice (as opposed to the selling of insurance) as their
primary function? Should they charge fees for advice separate from sales commissions?
Should they hold themselves out as independent providers of financial advice
or continue to identify closely with their insurance carriers? And in light
of all this, will the career agent’s contract as it exists today be a viable model?

This is quite a set of choices. Several are not newagents have been dealing with issues such
as whether to go independent, or whether to highlight the company’s logo
versus their own name with “and associates” on the sign out front,
for years. The distinction is subtle, but the way an agent structures and
focuses his or her practice will make the difference between whether he or
she will just survive or actually thrive as the new millennium unfolds.

What will beThe primary work of a life insurance agent has always essentially been that of a family financial
advisor. Given the complexity of financial life today, it needs to become
even more so. Few observers believe a solo agent with an unfocused practice
consisting of some long-term care, some group health, some mutual funds, some
variable annuities, and a little whole life and term, and maybe a bit of estate
planning, will be likely to thrive.

This is because agents today must know, and be able to do, far more than just sell insurance off
the shelf. They must know how the customer should deploy the funds inside
a variable life or annuity contract. They must be able to determine whether
a client would be better off rolling an old IRA or 401(k) payout into a Roth
IRA. Sometimes, an agent needs the sensitivity to know whether it’s right
to intervene with a client’s family in a crisis, because the client is
emotionally shattered. An agent’s advisory practice today can even extend
to resolving other financial issues that don’t involve insurance in a
direct way, such as advising a client on whether to buy or lease a new car.

Whether for individuals or businesses, the job of agent now demands more education and people skills
than ever and that trend will continue to develop. With huge amounts
of new wealth appearing, agents are going to have to know how not just to
deploy investments, but also how to create customized instruments that will
suit what can sometimes be eccentric needs. And emotional issues are going
to come up for the clients and their families, no matter what size the case.
In fact, the bigger the case, the more emotional issues a client will have.
And the more technically complicated planning gets, “the more important
the emotional side’s going to get,” says Atlanta-based insurance
broker Robert Littell.

And with the possibility of a large intergenerational transfer of wealth over the next 25 years, financial
issues are, sadly, bound to generate discord and difficulty within several
families. Already, several psychologists in private practice have found a
lucrative subspecialty in helping families deal with money issues, and they
will consult with advisors when emotional issues get in the way of giving
financial advice.

Fortunately for agents, in terms of emotions and money, they have, and probably always will have,
an edge on other advisors, because they’ve always understood the huge
role emotions play in financial planning. And the impact of emotions on a
client’s financial life must not be underestimated: emotions are at the
root of today’s burgeoning customer need to know everything about their
finances at all times.

More and more customers are insisting on spot access to information about their investments and what
they’re worth, and want faster service on anything having to do with
their accounts and policies. Financial companies now provide more of such
information and administration ability both by phone and online, but insurers
are still lagging other financial services providers in satisfying this gnawing
demand. Producers need to become more technologically sophisticated.

Few believe the low-end or middle market for insurance will ever vanish. The need for asset protectionor
at the very least, small policies for burial needswill continue to exist
up and down the income and net worth spectrum.

But most industry observers believe the agent of todayespecially the career agentis going
to have to evolve into an independent financial advisor. According to research
by Prince & Associates LLC, Shelton, Conn., in the next five years, it’s
only about 61% likely that there will be more than five cost-effective, competitive
and profitable career agency systems. That’s not many places to ply the
career agent trade.

For many, however, becoming that advisor will mean making tough choices in several aspects of their practices.
Those who have already specialized in areas such as employee benefits and
deferred compensation are not expected to be vulnerable to any real shakeout
in their practices. In fact, with the growth in worksite marketing over the
past several years, opportunities for more sales through small and mid-sized
businesses appear to be on the horizon.

Agents who have added equity products and actual investment expertisenot just a licenseto
their practices have also pulled a bit ahead. And it’s a reasonably safe
bet that unless something really dire happens, agents who do COLI (corporate-owned
life insurance and executive benefits) will be just fine.

At the low-end and middle markets, industry observers believe the Internet, banks, and certain segments
of the career agent and financial advisor universe will take over caring for
their insurance and financial needs. Clients with higher incomes and net worths,
however, will requireand indeed, demandmore customized advice,
products and services. Selling to and servicing these folks will mean a far
greater need for a type of upgrading of knowledge, skills and technology that
agents as a universe haven’t yet done.

Who will survive, and who will thrive?Agents who will thrive will be the men and women who choose what kind of advisor they want to be,
what types of clients they serve, and how extensively they will serve those
clients. &quo;A good agent must be vision- and mission-oriented. He must
have established very firmly what he has to be,&quo; says consultant Maury
Stewart, of West Conshohocken, Pa., a former agent and 47-year industry veteran.

The more successful both the agents and their clients become, the more the agents are going to have
to respond to their clients’ desire for them to be a central solution
for all their needs. “Anyone positioned as focused around one product
will be at a disadvantage going forward,” says Toronto-based insurance
marketing consultant Dan Richards.

Today’s clients also want an advisor who is seen as independent. “If you don’t hold yourself
out as independent, you’re going to lose,” says Edward Watkins,
a Fairfax, Va.-based agent who is also a past president of the agents’
association of MassMutual. Even long-time career people see they will have
to present themselves as being more independent, because of the level of antipathy
toward insurance agents. “I call our operation Madison Financial GroupI
don’t want my potential clients thinking insurance agency’
when I’m looking to do business,” says Tom Ungashick, a Metropolitan
Life general agent in Atlanta.

Agents are coming to understand that their primary business relationship is no longer with their companies,
but with their customers. Therefore, it is becoming more important that vendors,
be they broker-dealers, producer groups, insurance companies or whatever,
enable agents to give their clients the best service, as well as the most
cost-effective product for their needs, possible. Fewer agents are content
to leave money on the table just because their companies won’t let them
sell certain product lines.

Insurance companies are themselves starting to see they need to do more for their agents, and are
trying to respond. For example, in mid-1999, after several years of planning,
Prudential brought out its Advisor 2000 program, a practice management program
that supports both career and independent agents in educating themselves and
structuring their practices to prospect the more affluent market. Axa, the
parent of the Equitable Society, has recently set up a program to train its
agents to become financial planners. And early in 1999, John Hancock went
so far as to have its agencies work under the name Signator Financial, so
the Hancock name wouldn’t deter potential financial planning clients
from coming to the agency for full advisory services.

The three attributes that will apply to the agent or advisor who will prosper are an entrepreneurial
bent, a desire to continue building knowledge and skill, and the interpersonal
skills to be the client’s main financial advocate, according to Russ
Alan Prince, president of Prince & Associates.

There’s much that goes into thinking like an entrepreneur, but some agents resist one of the
more important elements: the need to invest in good, competent support people.
“You can’t operate out of the trunk of your car anymore,” says
Ronald Wedin, assistant vice president, advanced sales, for Reliastar in Minneapolis.

The agent’s skill and knowledge base have to be cutting-edge, no matter what market is being
pursued. And the third requirement, exceptional interpersonal skills, is non-negotiable, Prince says.

But most important, agents are going to have to be flexible. They will have to understand that in change
also lies opportunity. For example, employee benefits specialist Robelynn
Abadie of Baton Rouge, La. got into selling heath benefits when oil went bust
in the 1980s, and is now looking to come back to financial planning. And after
the health care reform scare in Clinton’s first administration, and then
the legal and regulatory decisions that opened insurance sales to banks, Ed
Watkins shored up his income stream by incorporating sales of registered products
such as securities and mutual funds into his practice.

Even though some producers might deride the sale of individual securities and mutual funds in an insurance practice
as “too easy” or “seductive,” some have discovered that doing so can actually open the door to insurance sales.

“I want my clients to see me as someone who can do financial planningand then I hope that
I can get their insurance business,” says advisor Joe Jiovenetta, an independent financial planner in Deerfield Beach, Fla.

In the final analysis, the people who have done well and will do well, according to Maury Stewart,
are the ones who are totally dedicated. “I’ve been in this business
for 47 years and I’m still excitedthe opportunities today are better
than ever,” he says. And there’s nothing out there that says agents
can’t be part of this bright future as long as they put themselves
in the right place.